Week of January 27, 2025

Key Points for the Week

• The S&P 500 made a new all-time high. • A good first five days of 2025 could be one clue for more strength in the stock market. • Treasuries are often an effective diversifier, but other areas of the market have worked much better during some major stock selloffs.

Current Trends & News is a weekly financial recap curated by SPC Financial®’s team of wealth management and tax-integrated advisors.* We monitor and explore the intricacies of the financial world and share insights into market developments.

Economic Update

What moves financial markets? The short answer is that stock prices are influenced by many factors.

“The market is a voting machine; whereon countless individuals register choices which are the product partly of reason and partly of emotion.”

Benjamin Graham and David L. Dodd

Today, the same holds true. Below are some examples of factors that influence the stock market:

1. Market trends. Last year, companies with strong momentum characteristics—meaning their prices were trending higher—generally did well.

“The main rationale behind momentum investing is that once a trend is well-established, it is likely to continue.”

Corporate Finance Institute

The idea may seem contrary to the primary rule of investing, sell high and buy low, but the approach is backed by academic research.

“It captures the tendency for market trends to persist for a while, whether it’s because more investors are jumping in or are late to absorb new information.”

Justina Lee, Bloomberg

2. Investor sentiment. Emotion plays a significant role in stock market volatility. For example, last week, we saw a relief rally. Asian stocks rose and the Standard & Poor’s (S&P) 500 Index hit a new high because the news was less bad than investors had expected.

“Despite the protectionist threats of the campaign trail, Trump held off on imposing levies on key trading partners this week, and just last night delivered his most mollifying message yet to China by saying that he would rather not have to use tariffs against the world’s second-biggest economy. Cue a relief rally across markets.”

Isabelle Lee, Lu Wang, and Phil Serafino, Bloomberg:

3. Company fundamentals. Graham and Dodd recommended fundamental analysis to identify stocks with good value. Investors who rely on fundamental analysis study companies’ financial statements, and consider assets and liabilities, revenue and expenses, earnings and cash flow, and other factors. Then they do some math to evaluate the company’s value using various measures like the price-to-earnings ratio. In theory, a company with a low share price relative to its earnings is a good value.

No one knows how markets will perform over the short term. That’s one reason it’s important to hold a diversified portfolio. Owning investments that perform differently in various market conditions helps manage investment risk and may smooth returns over time.

Last week, major U.S. stock indices rose. The S&P 500, Dow Jones Industrial Average, and the Nasdaq Composite moved higher over the week, reported Paul R. LaMonica of Barron’s. Yields on U.S. Treasuries were relatively steady.

This Week in the Markets

Although you may not expect there to be much correlation here, the first five days of a new year can sometimes foreshadow how the rest of the year might go.

Since 1950, the first five days were in the green 48 times and the full year was higher 81.3% of the time and up 14.2% on average (both better than the average year gain of 9.5% and up 72.0% of the time). Digging in a little bit more, a negative first five days suggests virtually a flat year on average and higher only 55.6% of the time. This matters, as the first five days in 2025 were up 0.62%, suggesting some potential good news for the bulls.

Post-Election Years Have Been Strong Lately

Post-election years have historically provided average returns for investors. As you can see below, since 1950, most of the big gains took place in pre-election years, while midterm years struggle. This means election and post-election years have tended to be more along an average type of year.

In more recent times, post-election years have been very strong. Going back 40 years (to 1985) post-election years have gained more than 18% on average and have been higher nine out of ten times.

Here we break it down by all post-election years going all the way back to 1897 and as you can see, only Bush in 2001 saw a negative return during this year in the cycle in more recent times.

Here are the returns for the four-year presidential cycle since 1950 compared with the past 10 cycles. Post-election years are far and away the best performing year more recently.

What about taking the extra step and breaking it down by whether there was a new president versus a president in their second term? Here we found that stocks once again do much better in post-election years under a second term president, yet another positive for 2025.

Looking back at the history of major stock declines, bonds — long-dated Treasuries in particular — have indeed often been one of the best diversifiers during stock selloffs, but not always. Broad commodities often see sharp declines during equity selloffs, but in 2022, commodity exposure was a far more powerful diversifier than fixed income. And gold was also a better diversifier than either during the Great Financial Crisis and in 2018. The point is that bonds, especially long maturity Treasuries, are often an effective diversifier during stock declines, but it does depend on the environment, and bonds are not the only diversifier.

More recently bonds have started to return to their more typical role of bond diversifier but then were reminded of the conditions when they might not be. Looking at every S&P 500 decline over 5% starting with the pandemic, we can see that bonds were an effective diversifier in 2020, but then failed to outperform Treasury bills during every ensuing decline, five of them altogether covering 2022, 2023, and early 2024. Finally, during the more than 5% decline we saw in July and August of 2024, long Treasuries solidly outperformed Treasury bills and even offset much of the equity market decline. They did it again during the 4.2% stock decline in August and September.

In December and January, as economic expectations shifted higher accompanied by some anticipatory concerns about the inflationary impact of tariffs (including by the Fed), another 4.2% decline in the S&P 500 was accompanied by a sharp decline in long Treasuries.

Planning for Required Minimum Distributions

If you save for retirement in a qualified plan, such as a 401(k) plan or an IRA, the government currently requires you to take withdrawals from these accounts during retirement. The withdrawals, known as required minimum distributions or RMDs, are taxable so it is a good idea to plan and avoid unexpected tax consequences.

Here is some basic information about RMDs. It is offered with the caveat that RMDs have complex rules. It is important to talk with your financial or tax professional before acting.

If your 73rd birthday is in 2025, your first RMD must be taken by April 1, 2026. Your second RMD by December 31, 2026, your third RMD by December 31, 2027, and so on.

If you delay your first distribution until April 1, 2026, then you will need to take two RMDs in the same year.

If you have multiple 401(k) plan and IRA accounts, you typically must calculate the RMD for each one of them. You can, however, withdraw the entire amount from a single account.

If you’re still working at age 73, you don’t have to take an RMD from your workplace retirement plan account (as long as the plan allows it). This exception does not apply to traditional IRAs. You must take RMDs from traditional IRAs, even if you are still working.

If you inherit an IRA from a spouse (after 2019) who already reached age 73, you will normally need to take an RMD for the year of death, if your spouse did not already take one. If your spouse dies before age 73, you may be able to keep the inherited account, roll it over into your IRA, or withdraw the money in a lump sum or over a period.

If you inherit an IRA from someone other than your spouse (after 2019), usually the funds must be completely withdrawn from the account within 10 years. RMDs may be required if the person from whom you inherited the account was already taking RMDs. There are some exceptions.

If you miss an RMD deadline or you don't withdraw the full amount, penalties are steep. The penalty tax is 25 percent of the amount you failed to withdraw. If you correct the issue within two years, the penalty tax is lower.

If you own a Roth IRA or Designated Roth account in workplace plan, you do not have to take RMDs—unless you inherited the account. In that case, RMD rules usually apply.

Again, the rules governing RMDs are complex, and calculating RMDs is not always straightforward. If you would like help, or you have questions, please contact us.

A Reminder About Scams

Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it is a scam if the person contacting you:

• Indicates there is a problem with your benefits. • Asks you to pay to receive a prize. • Suggests that paying will increase the chance of winning. • Requests financial information, such as a bank account or credit card number. • Pressures you to act immediately. • Tells you to pay using a specific method, such as a gift card or cryptocurrency.

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

When you suspect a scam:

• Hang up or close the message. Do not respond in any way. • Remain calm. __ __• Think back over the call. Write down any personal information you may have inadvertently shared. • Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state’s attorney general or your local consumer protection agency. • Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver’s license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

IRS Urges Taxpayers to Not Fall Prey to “Ghost Tax Preparers”

A common problem seen during tax season, “ghost preparers” pop up to encourage taxpayers to take advantage of tax credits and benefits for which they do not qualify. These preparers can charge a large percentage fee of the refund or even steal the entire tax refund. After the tax return is prepared, these “ghost preparers” can simply disappear, leaving well-meaning taxpayers to deal with the consequences.

While most tax professionals offer quality service, these ghost preparers and other unscrupulous preparers try to take advantage of people and should be avoided at all costs. The IRS encourages people to use a trusted tax professional, and IRS.gov has important information to help people choose a reputable, accredited practitioner.

Warning Signs to Look Out For

Most tax return preparers provide honest, high-quality service. But some may cause harm through fraud, identity theft and other scams. Paid preparers must sign and include a valid preparer tax identification number (PTIN) on every tax return. A ghost preparer is someone who does not sign tax returns they prepare. These unethical tax return preparers should be avoided, especially if they refuse to sign a complete paper tax return or digital form when filing electronically.

Taxpayers are also encouraged to check the tax preparer’s credentials and qualifications to make sure they are capable of assisting with the taxpayer’s needs. The IRS offers resources for taxpayers to educate themselves on types of preparers, representation rights, as well as a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to help choose which tax preparer is the best fit.

Some of the warning signs of a bad preparer include:

• Shady fees. Taxpayers should always ask about service fees. Shady tax preparers can ask for a cash-only payment without providing a receipt. They are also known to base their fees on a percentage of the taxpayer’s refund. • False income. Untrustworthy tax preparers may also invent false income to try to get their clients more tax credits or claim fake deductions to boost the size of the refund. • Wrong bank account. Taxpayers should also be wary of a tax preparer attempting to convince them to deposit the taxpayer’s refund in their bank account rather than the taxpayer’s account.

Good preparers ask to see all relevant documents like receipts, records, and tax forms. They also ask questions to determine the client’s total income, deductions, tax credits and other items. Taxpayers should never hire a preparer who e-files a tax return using a pay stub instead of a Form W-2. This is also against IRS e-file rules.

Report Fraudulent Activity and Scams

The IRS highly encourages people to report tax return preparers who deliberately prepare improper returns and any activity that promotes improper and abusive tax schemes.

To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242 – Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed Form 14242 and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.

Mail: Internal Revenue Service Lead Development Center MS7900 1973 N. Rulon White Blvd. Ogden, UT 84404 Fax: 877-477-9135

Alternatively, taxpayers and tax practitioners may send the information to the IRS Whistleblower Office for possible monetary award.

How To Avoid Tax Scams

Below is a link to a video provided by the IRS to help avoid tax scams:

https://www.youtube.com/@irsvideos

If you have any questions, please contact us.

Did you Know? This Week in History

January 30, 1920: Mazda Car Company Founded

On January 30, 1920, Jujiro Matsuda (1875-1952) formed Toyo Cork Kogyo, a business that made cork, in Hiroshima, Japan; just over a decade later the company produced its first automobile and eventually changed its name to Mazda.

In 1931, the company launched the Mazda-Go, a three-wheeled vehicle that resembled a motorcycle with a cargo-carrier at the back. The company’s car development plans were halted during World War II after the bombing of Hiroshima. In the 1950s, Mazda began making small, four-wheel trucks. The company launched its first passenger car, the R360 Coupe, in 1960 in Japan. Seven years later, Mazda debuted the first rotary engine car, the Cosmo Sport 110S. Mazda entered the American market in 1970, with the R100 coupe, the first mass-produced, rotary-powered car in the U.S. In 1978, the Mazda RX-7, an affordable, “peak-performing” sports car debuted. The following year, the Ford Motor Company took a 25 percent stake in the company.

In 1991, in another milestone for the company, a Mazda 787 B won the 24 Hours of Le Mans race, becoming the first rotary-powered car as well as the first Japanese-made auto to do so. However, Mazda was impacted by the economic slump in Japan in the 1990s and in 1996, Ford took a controlling stake in the automaker and rescued it from potential bankruptcy. The two companies shared manufacturing facilities in several countries along with vehicle platforms and other resources. In 2008, Ford, which had been hurt by the global economic crisis and slumping auto sales, relinquished control of Mazda by selling 20 percent of its controlling stake for around $540 million.

Weekly Focus

If you run into a wall, do not turn around and give up. Figure out how to climb it.

Michael Jordan, American Basketball Player

Life is not about finding yourself. Life is about creating yourself.

George Bernard Shaw, Irish Playwright